Dendreon Admits Defeat, Stock Plummets

Dendreon (NAS: DNDN) has thrown in the towel. Given up. Waved the white flag. Admitted defeat.

And investors aren't too happy about it.

The company is closing the New Jersey plant that manufactures its prostate cancer treatment Provenge. In doing so, the biotech basically said, "We don't think there's any way we'll be able to hit our previous goals any time in the medium term."

The closure will save the company money, which is certainly a good thing. Dendreon can now get to cash flow positive at $400 million in annual sales rather than the $500 million it had previously guided. The closure, which is expected to be complete in the fourth quarter, will get cost of goods sold down to less than 50% of revenue, versus the 77% we saw in the second quarter.

With just two facilities, Dendreon will be able to produce $1 billion worth of Provenge with the potential to double that if automation is implemented in a few years. That leaves some room to run, especially since sales actually fell slightly quarter over quarter.

The biotech blamed a variety of factors for the second-quarter shortcomings.

A large number of vacancies in the sales rep position. Apparently some employees jumped ship for other oncology drugs. Johnson & Johnson's (NYS: JNJ) Zytiga and Sanofi's (NYS: SNY) Jevtana are already on the market for prostate cancer, and Medivation's (NAS: MDVN) MDV3100 isn't that far behind.

I can see how a lack of sales reps might inhibit growth, but it seems like a bit of stretch to say that it caused sales to decrease. Are doctors really so uninterested in Provenge that if the sales rep isn't in their office on a regular basis, they forget about prescribing it? Getting treated with Provenge is more complex than simply writing a prescription, but if doctors were really excited about prescribing Provenge, they'd find a way to get their patients on the treatment even if there were no sales reps around to walk them through the process.

Infusion cancellations. If patients don't get infused, Dendreon doesn't get paid. The company said the cancellations at the end of June were twice the level normally seen, but it adamantly denied that it had anything to do with patients switching to competing drugs after setting up the treatment. Dendreon has deployed a nursing team to ensure patients are able to get to their infusions, so hopefully it'll go away, and at the very least, the company won't be able to use the excuse anymore.

Focus and execution. As far as I can tell, this seems like the catchall for "we screwed up." And that's the main problem at Dendreon right now.

The good news is that there isn't a big difference between $80 million in sales in the second quarter and the $100 million Dendreon needs to stop bleeding cash. A little focus and execution might actually get the company there in a few quarters.